Over the past 92 years, the S&P 500 has produced gains that average 18% in 3 out of 4 years and losses that average 14% in 1 out of 4. Stocks are a great place to invest if you can wait 3 years or more until you need your money. Everyone has their own ability to stay on course, so we start with a plan, and we stick to it.
Today’s price for any company is primarily based on its earnings prospects, so we invest in a company after understanding how today’s price compares to tomorrow’s earnings. There is little room for emotion. We don’t allow fear to drive sell decisions during steep declines, nor do we start buying just because prices running up. Buying decisions often require courage when stocks are down and selling requires discipline when prices exceed all rational explanation. These skills require cool-headed intellect and emotional detachment.
At the beginning of 2022 our concerns include a new Covid variant and supply-chain bottlenecks causing more inflation. Next are rising interest rates intended to slow demand and lower inflationary pressures, that in turn lowers earnings expectations that lowers the market. Other concerns include China’s Chip & Tech War, the pending invasion of the Ukraine, the systemic effect that a post-Covid oil shock could have on the worlds’ economy. Did I mention the Fed tapering its purchases of bonds, and its need to sell at least some of those bonds in the open market?
What I call “Hope & Dream Stocks” typically have no earnings, are based on a futuristic technology, and were priced as if all best-case scenarios had already occurred. These stocks have lost half their value since December, and clearly represented a high risk then. The financial press now leads most to believe these Hope & Dream Stocks are least likely to provide excellent results in 2022 and beyond. We disagree. We firmly believe that a select few will provide outstanding returns over the next few years.
Our Strategy:
At the beginning of January of 2022, we were selling higher risk stocks and longer-term bonds to build cash reserves, while managing the tax outcome. We have created a “buy list” of the best companies for superior results in 2022 and beyond and want you to benefit from our work. This is no longer a “Buy the Dip” market, this is a fundamental securities analysis’s dream. These companies will weather what may evolve into an oil-shock induced recession and continue to thrive in the face of some interesting times ahead.